ACCT 2210 Exam #2 Formulas

What period costs are included in absorption costing?

Fixed and Variable SG&A

What is usually plotted as a horizontal line on the CVP graph?

Fixed expenses

What period costs are included in variable costing?

Fixed manufacturing overhead, Variable SG&A, Fixed SG&A

When the units produced are less than the units sold, the net operating income computed using the variable costing method is ______ the net operating income using the absorption costing method.

is greater than

When the units produced exceed the units sold, the net operating income computed using the variable costing method is ______ the net operating income using the absorption costing method.

is less than

When the number of units produced is greater than the number of units sold, variable costing net operating income will be ________.

less than absorption costing net operating income

Margin of Safety Percentage

margin of safety in dollars / total budgeted (or actual) sales in dollars

The measure of how sensitive net operating income is to a given percentage change in volume sales is called _______.

operating leverage

Absorption costing income statements ignore ________.

variable and fixed cost distinctions

How do you calculate total manufacturing costs when using the variable costing method?

Direct materials + Direct labor + Variable man overhead

How do you calculate total manufacturing costs when using the absorption costing method?

Direct materials + Direct labor + Variable man overhead + (Fixed man overhead/units produced)

Variable Expense Ratio

(Variable Expenses/Sales) or (1-CM ratio)

COGS using absorption costing

= Direct labor + Direct mats + Variable man overhead + Unit fixed man overhead of units produced

unit sales needed to attain target profit

=(Fixed expenses + target profit)/

With regards to interpretation, what are the important areas that appear on a CVP graph?

Break-even point, loss area, and profit area

change in contribution margin

CM ratio x change in sales

Degree of Operating Leverage

Contribution Margin / Net Operating Income

Contribution Margin Ratio

Contribution Margin / Sales

What product costs are included in variable costing?

Direct labor, Direct mats, Variable manufacturing overhead

What product costs are included in absorption costing?

Direct labor, Direct mats, Variable manufacturing overhead, Fixed manufacturing overhead

Where is Fixed Man Overhead classified on the income statement when using the variable costing approach?

Period cost

Where is Fixed selling and admin expenses classified on the income statement when using the variable costing approach?

Period cost

Where is Variable selling and admin expenses classified on the income statement when using the variable costing approach?

Period cost

Where is Direct Labor classified on the income statement when using the variable costing approach?

Product cost

Where is Variable Man overhead classified on the income statement when using the variable costing approach?

Product cost

The profit graph is based on the following linear equation:

Profit = Unit CM × Q - Fixed Expenses.

contribution margin

Sales - Variable Costs

Variable Costing Contribution Margin formula

Sales of goods sold - Direct labor of units sold - Direct mats of units sold - all variable expenses of units sold

contribution margin per unit

Selling price - variable cost per unit

Margin of Safety in Dollars

Total Sales - Break Even Sales

Unit Contribution Margin ratio

Unit Contribution Margin / Unit Selling Price

What is represented on the X axis of a cost-volume-profit (CVP) graph?

Unit volume

Which of the following costing approaches is best suited for cost-volume-profit analysis? A. Absorption B. Variable C. Normal D. Standard

Variable

When the units produced are equal to the units sold, the net operating income computed using the variable costing method is ______ the net operating income using the absorption costing method.

is equal to

Change in Net Operating Income

change in sales x contribution margin ratio

% change in net operating income

degree of operating leverage x % change in sales

Break even point in units

fixed costs / contribution margin per unit

Break even point in dollars

fixed costs / contribution margin ratio

The difference between absorption costing net operating income and variable costing net operating income can be explained by the way these two methods account for ________.

fixed overhead costs